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Fitch Affirms Academic Loan Funding Trust 2013-1

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the outstanding senior note of Academic Loan Funding Trust 2013-1 at 'AAAsf', Outlook Stable. The affirmation is due to the note passing both Fitch's credit and maturity stresses at the commensurate rating level. A full list of rating actions follows at the end of this release.

Despite the affirmation, the issuer did not provide Fitch with collateral data the agency typically requests, and conservative assumptions were implemented. Future lapses in data reporting may impact Fitch's ability to perform its analysis and maintain a rating on the outstanding notes.

KEY RATING DRIVERS

U.S. Sovereign Risk: The trust collateral consists of Federal Family Education Loan Program (FFELP) loans, 100% of which are rehabilitated loans. Guarantees are provided by the transaction's eligible guarantors and reinsurance is provided by the U.S. Department of Education (ED) for at least 97% of principal and accrued interest. Fitch's U.S. sovereign rating is currently rated 'AAA', Outlook Stable.

Collateral Performance: Fitch assumes a base case default rate of 54.25% and a 100% default rate under the 'AAAsf' credit stress scenario. Fitch applies the standard default timing curve in its credit stress cash flow analysis. The base case default assumption of 54.25% implies a constant default rate of 11.7% (assuming a weighted average life of 4.6 years), higher than the trailing 12-month (TTM) constant default rate (CDR), utilized in the maturity stresses, of 10.3%. The claim reject rate is assumed to be 0.25% in the base case and 2.0% in the 'AAAsf' case.

The TTM average levels of deferment and forbearance are 10.2% and 19.1%, respectively. Income-based repayment (before adjustment) was not provided by the issuer and the TTM average was assumed to be a conservative 35.0% due to lack of information; Fitch's cash flow model indicates the transaction can withstand IBR levels of up to 45.0%. The constant prepayment rate (voluntary and involuntary) with the above assumptions is 16.7%. Subsequent declines or increases are modelled as per criteria. There are no borrower benefits, as rehabilitated loans are precluded from receiving them.

Basis and Interest Rate Risk: Fitch applies its standard basis and interest rate stresses to this trust as per the agency's criteria.

Payment Structure: Credit Enhancement (CE) is provided by excess spread and overcollateralization. Liquidity support is provided by a reserve account currently sized at $471,937 and having a floor balance of $250,000. As of the September 2016 distribution date, total parity is at the specified overcollateralization (OC) of 104.0% (3.9% CE). Excess cash will be released as long as the target OC amount is maintained.

Maturity Risk: Fitch's student loan ABS cash flow model indicates that the note is paid in full on or prior to the legal final maturity dates under the commensurate rating scenario.

Under Fitch's criteria 'Rating U.S. Federal Family Education Loan Program Student Loan ABS Criteria', dated July 26, 2016, Fitch does not address the process by which it gives certain credit to short-term assets in its cash flow analysis, and it is therefore considered a criteria variation. There is no rating impact from such variation.

Under the Counterparty Criteria for Structured Finance and Covered Bonds, dated Sept. 1, 2016, Fitch looks to its own ratings in analyzing counterparty risk and assessing a counterparty's creditworthiness. The definition of the permitted investments for this deal allows the possibility of using investments that do not meet Fitch's criteria, this represents a criteria variation. Fitch does not believe such variation will have a measurable impact upon the ratings assigned.

RATING SENSITIVITIES

Since the FFELP student loan ABS relies on the U.S. government to reimburse defaults, 'AAAsf' FFELP ABS ratings will likely move in tandem with the 'AAA' U.S. sovereign rating. Aside from the U.S. sovereign rating, defaults, basis risk, and loan extension risk account for the majority of the risk embedded in FFELP student loan transactions. Additional defaults, basis shock beyond Fitch's published stresses, lower than expected payment speed, and other factors could result in future downgrades. Likewise, a buildup of CE driven by positive excess spread given favorable basis factor conditions could lead to future upgrades.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

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